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Equilibrium Involuntary Unemployment Under Oligempory

Author

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  • L Kaas
  • P Madden

Abstract

We show that equilibrium involuntary unemployment emerges in a multi–stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the undercutting firm out of both markets. Full employment equilibria are payoff dominated by unemployment equilibria, and the arguments are robust to decreasing returns.

Suggested Citation

  • L Kaas & P Madden, 2002. "Equilibrium Involuntary Unemployment Under Oligempory," Centre for Growth and Business Cycle Research Discussion Paper Series 21, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:21
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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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